In a Nutshell
*Disclaimer: Here’s a glimpse of our past report. Stay informed with the latest updates by subscribing to our mailing list for the most current information.
Coffee traders are used to volatility, but even judging by our high standards the New York rally of 33 cts in just 4 days was spectacular. Speculative buying was the main driver of this ascension, as more stories come out of Brazil about some premature flowerings that could compromise the 2023/24 crop and a potentially lower 2022 harvest hurt by drought and frosts last year.
Most public estimations for the Brazil 2022/23 crop have been on the high side and – now when the crop is harvested – converging towards 40 million bags for Arabica. The market shrugged off recent gradings (read: re-gradings) as the consensus is it will be limited to <300k bags assuming the current pass-rate holds, which is not enough to turn around the ongoing decline.
With NY now trading ~240 cts again, the million-dollar question is, has the current concerns about Brazil been priced in? Overall, the Arabica balance-sheet looks tight in the coming months and inverted New York Z/H spread (and London F/H) suggests supply tightness would only peak around Q1/2023. Whatever is the answer, it is nice for balance-sheet traders to witness Fundamentals taking front-seat one more time and Macro now moved to the backseat, even if only temporarily so…
